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Debt the four letter word that Americans struggle with annually

Despite the recession a recent report from the New York Federal Reserve Bank shows that banks and creditors are finally starting to lend money again more openly. Lending to households has been increasing since 2013. More importanly this shows that families and even single individuals are now more willing to borrow to invest in long term assets such as real estate, autos and higher education. The number of households struggling with household debt due to substantial increases in student loan debt is however on the rise.

Mortgages have been the largest component of typical household debt today. Mortgage balances increased in 2013 by a net 16 billion up sharply from 2012. Auto loans have also been increasing up by nearly $80 million dollars. More Americans are less likely to rack up credit card debt with credit card debt only rising by $4 billion dollars, yet experts in the field also attribute this to credit card companies being less likely to approve people for credit and monitoring their customers use of said credit more stringently than ever before. Home equity loans have surprisingly declined by more than $34 billion dollars.

The largest growth loan wise and debt wise has been student loans, student loan debt has increased by over $114 billion dollars since 2014. In fact student loan debt is the only debt that has increased in size consistently both before, during and after the recession. Student loan debt has more than doubled since the recession. Student loan debt is only eclipsed by mortgage debt. Student loan debt was only the 5th largest category of debt in 2007 before the recession but today it is the 2nd largest form of debt today following mortgage debt with the majority of mortgage debt incurred before the recession began. One of the reasons that there is more student debt today is that when the recession struck millions of Americans realized they made too little income and that further education would provide a safeguard during uncertain economic times.

The troubling aspect of today’s massive student loan debt is that student loan debt is the only sector of loan debt that has had delinquencies on the rise from late payments to out right delinquencies and non payment of debt. Since the recession struck almost all debts have had serious delinquencies or accounts more than 90 days in arrears fall to record low levels, including mortgages, revolving home equity loans, auto loans. The only type of debt with delinquency rates near pre-recession levels is credit card debt. Education loan delinquencies however have risen to record levels. The Department of Education lists the three year default rate at 14.7 percent a 1.3 percent increase.

The increase in student loan debt and the rising costs of higher education hold a negative impact for the economy and society as a whole. Most of the delinquencies with student loan debt are with those just out of college and only just beginning their careers. The massive debt load imposed by their higher education makes them less likely to finance major purchases or make investments.

More troublesome is that many of these people are putting off saving for retirement while struggling to pay down the student loan debt. Less money today is going into investments and purchases as a result which in turn leads to a trickle down effect on the overall economy adding to the recession recovery. New mortgages are also down from 2008’s levels showing that more Americans are still recovering from the recession and less likely to take on large loans.

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